Source: ETF savings versus futures could hit record amount this December

First Published 7th December 2015

Source believes that investors who switch out of futures contracts into ETFs during the quarterly 'roll' this December could make record savings.

London - New
analysis 1 from Source, the providers of Exchange
Traded Products in Europe, reveals that investors who switch out
of futures contracts into ETFs during the quarterly 'roll' this
December could make record savings. Historically, savings of up
to 18 basis points a year were already possible for some
investors in some indices, but Source believes that, this month,
the potential cost savings for some investors using ETFs could be
closer to 30 to 50 basis points on an annualised basis.

The analysis is based on the cost comparison of
Source ETFs and futures linked to five leading indexes: the EURO
STOXX 50, the S&P 500, the STOXX Europe 600, the FTSE 100 and
the MSCI Europe. It shows that for investors seeking long-term
exposure to these indices, ETFs are more attractive than ever
versus futures.

Source estimates that $100 billion of assets
have been switched globally into ETFs from futures over the last
two years, largely because of ETF charges falling. For instance,
the Source EURO STOXX 50 UCITS ETF and Source S&P 500 UCITS
ETF each have a fee of just 0.05% per annum.

There are four dates of the year when these
stock market futures, which provide synthetic exposure to
indices, expire and investors replace them with new contracts,
otherwise known as "rolling". The December contracts expire on
18th December, and investors would typically roll in the week
leading up to this expiry date.

Rick van Leeuwen, European Capital Markets at Source, commented:
"The December roll is typically more expensive for futures
contracts. This is because the increased regulatory pressures
imposed on banks following the financial crisis means they are
less inclined to hold higher-risk assets on their balance sheets
towards the end of their financial year. The banks have to hold
more collateral to cover this risk, so they help compensate for
it by charging higher prices to act as counterparties for futures
contracts.

"Even taking the seasonal factors into account, the savings from
investing in ETFs rather than futures is at an all-time record
high. The final roll cost will not be known until after all the
dividends are paid out, in February or March 2016, but all
indications right now point to this being much higher than in
previous December roll periods, potentially up to 50 basis points
annualised We believe this offers an excellent opportunity for
investors wanting long-term exposure to indices."

1 Source: Analysis of Source ETFs and futures traded
on major exchanges in Europe and linked to five leading stock
indices, covering the period March 2013 to September 2015.